Modria and the Future of Dispute Resolution

By Ben Barton, Professor of Law, University of Tennessee College of Law

In Tomorrow’s Lawyers, British legal futurist Richard Susskind notes that technology comes in two flavors. In its more basic form, technology automates — it streamlines processes that once required significant human effort. Typewriters replaced handwriting, and later word processors replaced typewriters, for example.

But sometimes technology does more than automate. Sometimes it innovates. This occurs when technology creates a completely new way of handling the same task. As Susskind puts it, these innovations “allow us to perform tasks that previously were not possible (or even imaginable).”

Big Law (and all American lawyers) have been dealing with the automation of litigation tasks in recent years. Most legal process outsourcings (“LPO”) — whether outsourcing the drafting of discovery documents to India or using computer algorithms to handle document review — are examples of automation. Technology has made it possible to use cheaper foreign lawyers or powerful computers to handle tasks once reserved for expensive American lawyers, at a fraction of the cost.

For the foreseeable future, human lawyers will still be controlling litigation and making the strategic calls

The 2015 Citibank Client Advisory suggests that these automations are already having a negative impact on Big Law’s bottom line. Given the rapid pace of technological improvements and the general time lag between early adoption and full market penetration, the impact will probably only get worse.

And yet, these automations still leave the lawyers in charge. For the foreseeable future, human lawyers will still be controlling litigation and making the strategic calls (likely with the help of predictive algorithms and extensive data on litigation outcomes). Moreover, because of the protections on the unauthorized practice of law and the preferences of judges and juries, human lawyers will handle all in court work for as long as humans still prefer to talk to humans rather than machines.

Nevertheless, there is an innovation on the horizon that should give Big Law, and all American lawyers, pause: online dispute resolution (“ODR”), which is a growing substitute for in-court litigation.

Consider Modria, for example. Modria’s founder, Colin Rule, directed the eBay and PayPal ODR systems from 2003 to 2011. EBay and PayPal are natural sites for ODR. They have lots of low dollar transactions that occur across state and even international lines, making litigation cost prohibitive or simply impossible. EBay disputes are also often about much more than money. As Rule dryly notes: “dollar amount is usually not an accurate barometer of passion among eBay disputants.” And yet, the eBay process proved exceptionally successful, handling up to 60 million disputes a year, and settling approximately 90% of them with no human input on the company side.

Rule and others licensed the eBay software and launched Modria, an ODR system for hire. One of Modria’s products is a “Fairness Engine” that attempts substantive as well as financial settlement of disputes. It starts with a “diagnosis module” that gathers relevant information. A “negotiation module” summarizes areas of agreement and disagreement and makes suggestions for solving the issue. If these do not result in settlement, a “mediation module” with a neutral third party begins, and the final step is arbitration. Modria claims that the “vast majority” of claims are settled in the first two steps without a human ever becoming involved.

Modria’s roots are in disputes that few lawyers ever handled — small e-commerce issues — but its potential is much, much larger.

Obviously, using algorithms and computers to settle disputes is much cheaper than using humans. But Modria makes two additional claims. First, because of their long experience settling a flood of disputes (and keeping and analyzing all of the associated data), they have custom designed dispute resolution processes that are actually superior to those run by humans.

Second, when eBay customers who used the Modria system to settle a dispute were more likely to return to Ebay than other customers, including even the customers who “lost” their disputes. Why? Because when a dispute is handled fairly and quickly it increases customer trust and participation.

Modria’s roots are in disputes that few lawyers ever handled — small e-commerce issues — but its potential is much, much larger. Corporations all over the world are warming to the idea that disputes can be solved by computers so efficiently and fairly that they stop becoming a drag on profits and start becoming a method of increasing customer loyalty. How long will it be before these same corporations think of trying ODR for their own disputes, perhaps starting with smaller ticket items and working their way up?

Before you chuckle, remember that large-scale litigation has never been a worse value proposition. Federal and state courts have unprecedented backlogs. E-discovery, even with the use of LPOs, has made litigation lengthier, more intrusive, and more expensive than ever. And most cases settle anyways, making the associated legal costs look wasteful.

Right now, Modria promises an elegant solution to a previously insoluble problem: how to deal with the mass of smaller disputes created by e-business. Tomorrow, it may try to solve a different problem: how to deal with larger, more expensive disputes.